Correlation Between Steel Dynamics and Schwab Us

Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Schwab Us at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Steel Dynamics and Schwab Us into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Steel Dynamics and Schwab Mid Cap Index, you can compare the effects of market volatilities on Steel Dynamics and Schwab Us and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Steel Dynamics with a short position of Schwab Us. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Schwab Us.

Diversification Opportunities for Steel Dynamics and Schwab Us

0.26

Correlation Coefficient

Steel Dynamics  Schwab Us

Modest diversification

The 3 months correlation between Steel and Schwab is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Schwab Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Mid Cap and Steel Dynamics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Steel Dynamics are associated (or correlated) with Schwab Us. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Mid Cap has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Schwab Us go up and down completely randomly.

Pair Corralation between Steel Dynamics and Schwab Us

Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.12 times more return on investment than Schwab Us. However, Steel Dynamics is 2.12 times more volatile than Schwab Mid Cap Index. It trades about 0.11 of its potential returns per unit of risk. Schwab Mid Cap Index is currently generating about -0.03 per unit of risk. If you would invest  11,334  in Steel Dynamics on December 28, 2024 and sell it today you would earn a total of  1,500  from holding Steel Dynamics or generate 13.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Steel Dynamics  vs.  Schwab Mid Cap Index

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Schwab Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Mid Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Schwab Us is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Schwab Us

The main advantage of trading using opposite Steel Dynamics and Schwab Us positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Schwab Us can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Schwab Us will offset losses from the drop in Schwab Us' long position.

The idea behind Steel Dynamics and Schwab Mid Cap Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.